Correlation Between Indutrade and Alliance Data

Can any of the company-specific risk be diversified away by investing in both Indutrade and Alliance Data at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Indutrade and Alliance Data into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indutrade AB and Alliance Data Systems, you can compare the effects of market volatilities on Indutrade and Alliance Data and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Indutrade with a short position of Alliance Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indutrade and Alliance Data.

Diversification Opportunities for Indutrade and Alliance Data

-0.73

Correlation Coefficient

Indutrade  Alliance Data

Pay attention - limited upside

The 3 months correlation between Indutrade and Alliance is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Indutrade AB and Alliance Data Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Data Systems and Indutrade is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Indutrade AB are associated (or correlated) with Alliance Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Data Systems has no effect on the direction of Indutrade i.e., Indutrade and Alliance Data go up and down completely randomly.

Pair Corralation between Indutrade and Alliance Data

Assuming the 90 days trading horizon Indutrade is expected to generate 12.47 times less return on investment than Alliance Data. But when comparing it to its historical volatility, Indutrade AB is 1.8 times less risky than Alliance Data. It trades about 0.02 of its potential returns per unit of risk. Alliance Data Systems is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,413  in Alliance Data Systems on October 2, 2024 and sell it today you would earn a total of  2,733  from holding Alliance Data Systems or generate 80.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.76%
Values	Daily Returns

Indutrade AB  vs.  Alliance Data Systems

Indutrade AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indutrade AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Alliance Data Systems

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indutrade and Alliance Data

The main advantage of trading using opposite Indutrade and Alliance Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indutrade position performs unexpectedly, Alliance Data can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Alliance Data will offset losses from the drop in Alliance Data's long position.

The idea behind Indutrade AB and Alliance Data Systems pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.